Housing starts fell 10 percent from April to May, to a seasonally adjusted annual pace of 593,000 homes per year — up 21.5 percent from a record low in January 2009 but far below the 2-million-homes-per-year pace seen during the housing boom, the Census Bureau reported today.

With the expiration of the federal homebuyer tax credit at the end of April, single-family housing starts fell even more dramatically — 17.2 percent from April to May — to a seasonally adjusted rate of 468,000 homes per year.

Analysts are watching housing starts carefully because, with the exception of the dot-com bust at the turn of the century, housing tends to lead the economy into and out of recessions.

Although housing starts and sales were expected to fall off after the expiration of the tax credit, the question now is whether the latest numbers are a blip on the road to a sustainable recovery, or a larger setback.

The Mortgage Bankers Association recently reported that demand for purchase loans during the week ending June 4 was down 35 percent from the month before.

The MBA’s latest Weekly Mortgage Applications Survey, for the week ending June 11, showed demand for purchase loans bounced back 7.3 percent — the first increase in six weeks — but that applications were still down 31.3 percent from a year ago. With interest rates on 30-year fixed-rate loans at 4.82 percent, requests for refinancing were up 21.1 percent from the previous week.

But an index measuring builder perception on a scale of 1 to 100 fell to 17 in June, the lowest level since February.

Some industry observers think that once excess inventories are burned off, builders have scaled back housing production so drastically that they may be unable to react quickly enough to meet demand in some markets.

In a May 21 forecast, NAHB economists said they expect single-family housing starts will total only 571,000 this year and 841,000 next year — less than what would normally be needed to replace old housing stock and accommodate new household formation.

Looking ahead, the latest numbers from the Census Bureau and Department of Housing and Urban Development also showed building permit issuance falling 5.9 percent from April to May, to a seasonally adjusted annual rate of 574,000.

Permits authorizing construction of single-family homes were down 9.9 percent from month-to-month, to a seasonally adjusted annual rate of 438,000 units.

Builders completed homes during May at a seasonally adjusted rate of 687,000 homes per year, down 7.4 percent from April and 15.4 percent from a year ago. Single-family homes were completed at a seasonally adjusted rate of 507,000 per year, down 7.8 percent from April.


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